Axion Power International, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - Axion Power International, Inc.	s102112_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - Axion Power International, Inc.	s102112_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - Axion Power International, Inc.	s102112_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - Axion Power International, Inc.	s102112_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

AXION POWER INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		65-0774638
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)

3601 Clover Lane
New Castle, Pennsylvania		16105
(Address of principal executive offices)		(Zip Code)

	(724) 654-9300
	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

(Do not check if a smaller reporting company)

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Each Class	Outstanding Shares at November 9, 2015
Common Stock, $0.005 par value	3,934,728

AXION POWER INTERNATIONAL, INC.

FORM 10-Q

Report Index

PART I - Financial Information		3

Item 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Month and Nine Month Periods ended September 30, 2015 and 2014	4

	Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2015 and 2014	5

	Notes to the Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 4.	Controls and Procedures	24

PART II - Other Information		24

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 4.	Mine Safety Disclosures	24

Item 6.	Exhibits	25

Signatures		26

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

AXION POWER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2015 (unaudited)			December 31, 2014
ASSETS

Cash and cash equivalents	$	317,028		$	3,436,198
Accounts receivable, net		51,153			9,874
Other current assets		286,628			193,974
Inventory, net		844,415			1,136,948
Total current assets		1,499,224			4,776,994

Property & equipment, net		1,843,560			2,072,530

Total Assets	$	3,342,784		$	6,849,524

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable	$	270,853		$	335,936
Other liabilities		521,208			293,172
Notes payable		415,594			104,777
Convertible bridge notes		415,294			-
Accrued interest convertible notes		43,761			15,628
Subordinated convertible notes		65,000			65,000
Total current liabilities		1,731,710			814,513

Deferred revenue		55,871			55,871
Note payable		10,060			104,804
Derivative liability Series B warrants		70,198			2,930,335
Total liabilities		1,867,839			3,905,523

Stockholders’ Equity
Convertible preferred stock – 12,500,000 shares authorized $0.005 par value Series A preferred – 2,000,000 shares designated 0 shares issued and outstanding		-			-
Common stock-100,000,000 shares authorized $0.005 par value 3,934,728 issued and outstanding (206,808 in 2014)		19,674			1,034
Additional paid in capital		122,454,420			118,451,041
Retained earnings (deficit)		(120,747,536	)		(115,256,461	)
Cumulative foreign currency translation adjustment		(251,613	)		(251,613	)
Total stockholders’ equity		1,474,945			2,944,001

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	3,342,784		$	6,849,524

The accompanying notes are an integral part of these consolidated condensed financial statements.

AXION POWER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIIONS AND COMPRHENSIVE LOSS

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014

Net sales	$	166,980		$	319,463		$	510,536		$	4,529,387
Cost of tangible goods sold		233,405			545,752			639,142			4,787,461
Cost of goods sold - idle capacity		399,172			363,086			1,344,082			1,216,933
Gross Loss		(465,597	)		(589,375	)		(1,472,688	)		(1,475,007	)

Research and development expense		218,948			449,039			719,119			1,475,920
Selling, general and administrative expense		609,463			983,712			2,362,520			3,489,668
Other (income)		(4,591	)		(3,937	)		(4,599	)		(62,971	)
Operating loss		(1,289,417	)		(2,018,189	)		(4,549,728	)		(6,377,624	)

Change in value of senior warrants loss		-			511,520			-			2,125,576
Change in value conversion feature senior notes (gain)		-			-			-			(32	)
Change in value of Series B warrants (gain) loss		(1,180,861	)		-			639,989			-
Debt discount amortization expense		238,410			81,286			238,410			928,145
Interest expense, note payable		26,245			5,271			34,891			15,096
Extinguishment loss on senior notes conversion		-			-			-			1,192,189
Placement agent warrants		-			-			23,826			58,669
Interest on convertible notes		1,455			26,631			4,232			584,322
Loss before income taxes		(374,666	)		(2,642,897	)		(5,491,076	)		(11,281,589	)
Income taxes		-			-			-			-
Net loss		(374,666	)		(2,642,897	)		(5,491,077	)		(11,281,589	)
Foreign translation adjustment		-			-			1			(2	)
Comprehensive loss	$	(374,666	)	$	(2,642,897	)	$	(5,491,077	)	$	(11,281,591	)

Basic and diluted net loss per share	$	(0.11	)	$	(19.27	)	$	(2.65	)	$	(89.30	)

Weighted average common shares outstanding		3,369,508			137,162			2,075,076			126,331

The accompanying notes are an integral part of these consolidated condensed financial statements.

AXION POWER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	September 30,
	2015			2014
Operating Activities

Net loss	$	(5,491,077	)	$	(11,281,589	)

Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation expense		228,969			1,087,022
Change in value of Series B warrants		639,989			-
Change in value of senior warrants		-			2,125,576
Change in value conversion feature senior notes		-			(32	)
Debt discount amortization expense		238,410			861,215
Interest accrued, senior convertible notes paid in common stock		-			519,277
Extinguishment loss on senior notes conversion		-			1,325,839
Amortization deferred financing fees		-			66,930
Net (gain) on sale of assets		-			(3,935	)
Placement agent warrants		23,826			63,366
Stock issued for consulting fees		49,500			-
Stock based compensation expense		194,771			116,598
Inventory valuation adjustment		111,500			-

Changes in operating assets & liabilities
Accounts receivable, net		(41,281	)		497,363
Other current assets		(19,660	)		(85,174	)
Inventory, net		181,033			776,260
Accounts payable		153,863			254,761
Other current liabilities		148,756			(100,398	)
Accrued interest		28,133			44,305
Deferred revenue		-			(252,238	)
Net cash (used in) operating activities		(3,553,268	)		(3,984,854	)

Investing Activities
Other receivables		-			29,000
Proceeds from sale of asset		-			4,000
Capital expenditures		-			(107,180	)
Net cash (used in) investing activities		-			(74,180	)

Financing Activities
Repayment of note payable		(75,902	)		(85,865	)
Repayment of subordinated convertible note		-			(200,000	)
Proceeds from convertible bridge notes		510,000			-
Amount released from restricted cash account		-			3,780,341
Net cash (used in) provided by financing activities		434,098			3,494,476

Net change in cash and cash equivalents		(3,119,170	)		(564,558	)
Effect of exchange rate on cash		-			(2	)
Cash and cash equivalents – beginning		3,436,198			1,169,093
Cash and cash equivalents – ending	$	317,028		$	604,533

Supplemental Schedule of Cash Flow Information:
Cash paid for interest	$	11,007		$	32,319

Supplemental Schedule of Non Cash Investing and Financing Activities:
Interest accrued converted into debt principal	$	-		$	66,049
Common stock issued for principal payments on senior notes	$	-		$	2,725,000
Common stock issued to settle liability	$	9,180		$	-
Common stock issued in exchange for senior warrants	$	-		$	2,644,000
Common stock issued for warrants exercised	$	15,681		$	-
Reclassification of derivative liability for warrants exercised	$	3,500,126		$	-
Beneficial conversion feature related to convertible bridge notes	$	179,947		$	-
Debt discount and OID related to convertible bridge notes	$	243,169		$	-
Accounts payable converted to promisory note and prepaids	$	291,975		$	-
Round up shares	$	2,914		$	-

The accompanying notes are an integral part of these consolidated condensed financial statements.

AXION POWER INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September30, 2015

(unaudited)

1.	Financial Statements

These unaudited consolidated financial statements of Axion Power International, Inc., a Delaware corporation, include the operations of its wholly owned subsidiary; Axion Power Battery Manufacturing, Inc. and its two inactive wholly owned subsidiaries, Axion Power Corporation, a Canadian Federal corporation, and C & T Co. Inc., an Ontario corporation (collectively, the “Company”).

In the opinion of management the accompanying unaudited consolidated financial statements contain all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, statements of income and comprehensive income and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). These consolidated financial statements should be read in conjunction with the audited financial statements and footnotes thereto in the Annual Report on Form 10-K for the year ended December 31, 2014. The results of income and comprehensive income for the three and nine month periods ended September 30, 2015 are not necessarily indicative of results of income and comprehensive income for the Company’s 2015 calendar year.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, assumptions and judgments that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

Certain amounts for the results of operations and comprehensive loss for the three and nine months periods ended, September 30, 2014 have been revised to conform to the current years presentation.

As approved by our board of directors and shareholders, we effected a 1-for-50 stock split of our common shares on September 8, 2014.

During 2014 there were 244,537 true-up rounding shares issued due to the above mentioned reverse stock split.

As approved by our board of directors and shareholders, we effected a 1-for-35 stock split of our common shares and Series A warrants on July 14, 2015.

During 2015 there were 582,728 true-up rounding shares issued due to the above mentioned reverse stock split.

All share related and per share information has been adjusted to give effect to the reverse stock split from the beginning of the earliest period presented.

New Accounting Pronouncements

In August 2014, the FASB issued Accounting standards Update No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 will require management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued. The effective date was delayed until annual periods ending after December 15, 2016 to allow the auditing guidance to catch up with this change. ASU No. 2014-15 affects all companies and nonprofits and early application is allowed. We intend to evaluate the impact of our pending adoption of ASU 2014-15 on our consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP.

The aforementioned standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We intend to evaluate the impact of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

In June 2014, the FASB issued ASU 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU 2014-12 requires a performance target that affects vesting and that can be achieved after the requisite service period to be treated as a performance condition. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. ASU 2014-12 will be effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and can be applied either prospectively to new or modified awards or retrospectively to awards outstanding as of the beginning of the earliest annual period presented and to all new or modified awards thereafter. The Company has not yet selected a transition method and will evaluate the impact of the adoption of this standard on the Company’s financial statements.

AXION POWER INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(unaudited)

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which changed the requirements for reporting extraordinary and unusual items in the income statement. The update eliminates the concept of extraordinary items. The presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. A reporting entity may apply the amendments prospectively or retrospectively to all periods presented in the financial statements. The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this newly issued guidance is not expected to have an impact to the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidations (Topic 225-20): Amendments to the Consolidation Analysis, which affects current consolidation guidance. The guidance changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance must be applied using one of two retrospective application methods and will be effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the impact, if any, of the adoption of this newly issued guidance to its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Topic 225-20): Simplifying the Presentation of Debt Issue Costs, that simplifies the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by these amendments. This guidance should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The guidance will be effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the impact, if any, of the adoption of this newly issued guidance to its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, that simplifies the measurement of inventory for all entities. The amendments apply to all inventory that is measured using first-in, first-out or average cost. The guidance requires an entity to measure inventory at the lower of cost and net realizable value. The guidance must be applied prospectively and will be effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact, if any, of the adoption of this newly issued guidance to its consolidated financial statements.

Inventories

Inventories consist of the following:

	September 30, 2015			December 31, 2014
Raw materials and components	$	424,617		$	601,196
Work in process		604,371			639,957
Finished goods		92,565			80,263
Inventory reserves		(277,138	)		(184,468	)
	$	844,415		$	1,136,948

4.	Warrants

Warrants consist of the following:

	Shares			Weighted average exercise price		Weighted average remaining contract term (years)
Outstanding at January 1, 2015		2,223,284		$	114.15	5.0
Granted		513,081			2.63	5.0
Exercised		(2,121,729	)		-	-
Outstanding at September 30, 2015		614,636		$	12.79	4.7

Of the remaining 614,636 outstanding warrants as of September 30, 2015, 34,521 are Series B warrants.

AXION POWER INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(unaudited)

As of September 30, 2015, there were 34,521 Series B warrants classified as derivative liabilities relating to the public common stock offering that occurred on October 29, 2014. Each reporting period the Series B warrants are re-valued and adjusted through the captions “change in value of Series B warrants,” on the condensed consolidated statements of operations and comprehensive loss.

The amendments to the terms of the Series B warrants are as follows:

	•	The definition of the term “Market Price” in Section 3.3.2.1 of the Warrant Agreement (which covers the further cashless exercises of the Series B warrants) is amended to be the higher of (i) $0.10 ($3.50 post split) and (ii) 85% of the arithmetic average of the sum of the five lowest per share volume weighted average prices for the 15 trading days on the Nasdaq Capital Market (or if not on the Nasdaq Capital Market, on the Company’s then principal trading market) immediately prior to the date of exercise).

	•	On August 12, 2015, the Company filed a Definitive Schedule 14A proxy statement with the Commission requesting shareholder approval of the following amendment to the definition of “Market Price” (“Fixed Market Price Definition”): “Market Price” shall mean $0.10 ($3.50 post split; subject to adjustment for any stock split, reverse stock split, stock dividend, stock combination, recapitalization or other similar transaction). The Company took all steps reasonably necessary to obtain such shareholder approval of the Fixed Market Price Definition as soon as practicable thereafter, but in no event later than September 12, 2015, and the Company caused the Board of Directors of the Company to recommend that the shareholders approve such amendment. If the Company is able to obtain such shareholder approval, the definition of Market Price in the first sentence of this subparagraph a. shall automatically be replaced with the Fixed Market Price Definition. As of September 12, 2015, the Company had not received the approval of the requisite number of shares of the Company’s common stock to approve the Fixed Market Price Definition.

•

In consideration of the agreement by the holders of more than 65% of the remaining Series B warrants as set forth above, the Company has caused the initial Exercise Price of the Series A warrants to be reduced to $0.50 ($17.50 post split) per share.

The number of Series B warrants was not affected by the 1-for-35 reverse stock split and instead each warrant is exercisable into 1/35 of a share on a cash exercise basis.

On August 7, 2015, there were 510,000 warrants issued in conjunction with the Convertible Bridge Notes (See Footnote 7).

On August 25, 2015, the Company received a written notification from the Nasdaq Stock Market LLC that it did not meet the minimum of $2,500,000 in stockholders’ equity for continued listing (as set forth in Listing Rule 5550(b)(1)) as a result of the report of shareholders equity of $570,824 in the Company’s Form 10-Q for the period ended June 30, 2015, which was largely as a result of the valuation of the Company’s Series B Warrants for the quarter ended June 30, 2015. The notification does not result in the immediate delisting of the Company's common stock, and its common stock will continue to trade uninterrupted on the Nasdaq Capital Market.

The Company submitted a plan to regain compliance on October 9, 2015. If the plan is accepted, the Company can be granted an extension of up to 180 calendar days to evidence compliance. Nasdaq is continuing to review the plan, and the Company has since submitted additional information at the request of Nasdaq.

5.	Equity Compensation

The Company adopted ASC 718 “Compensation – Stock Compensation” whereby employee-compensation expense related to stock based payments is recorded over the requisite service period based on the grant date fair value of the awards. The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505-50 “Equity-Based Payments to Non-Employees”. The measurement date for fair value of the equity instruments is determined by the earlier of (i) the date at which commitment for performance by the vendor or consultant is reached, or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

The stock-based compensation expense was $194,771 of which $112,793 was for independent director’s compensation in lieu of cash, for the nine months ended September 30, 2015. The stock-based compensation expense was $116,598 of which $71,664 was for independent director’s compensation in lieu of cash, for the nine months ended September 30, 2014. In addition, the Company recorded $49,500 for non-independent director consulting fees which were paid with stock based compensation in lieu of

cash during the nine months ended September 30, 2015.

Outstanding compensatory options consist of the following:

				Weighted Average
	Number of Options			Exercise Price		Fair Value		Remaining Life (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2015		3,872		$	1,381.80	$	505.40		3.8	$	-
Granted		12,766			35.00		15.00		5.5		-
Forfeited or lapsed		(1,386	)		997.96		469.91		-		-
Outstanding at September 30, 2015		15,252		$	288.51	$	98.76		5.1	$	-
Exercisable at September 30, 2015		10,037		$	419.80	$	138.68		4.6	$	-

All non-vested compensatory stock options consist of the following:

	All Options
	Shares			Weighted Average Fair Value
Subject to future vesting at January 1, 2015		1,216		$	155.05
Granted		12,766			15.00
Forfeited or lapsed		(1,056	)		195.35
Vested		(7,711	)		13.24
Subject to future vesting at September 30, 2015		5,215		$	21.98

As of September 30, 2015, there was $109,394 of unrecognized compensation related to non-vested options granted under the plans. The Company expects to recognize this expense over a weighted average period of 2.3 years. There were 7,572 options granted valued using Black Scholes Merton with the following assumptions: (i) volatility of 71.1%. (ii) risk free interest rate of 0.85%, (iii) dividend rate of zero, (iv) expected life 5 years, and (v) exercise price of $35.00. In addition, 5,194 options granted were valued using Black Scholes Merton with the following assumptions: (i) volatility of 186.0%, (ii) risk free interest rate of 1.10%, (iii) dividend rate of zero, (iv) expected life 5 years, and (v) exercise price of $35.00.

AXION POWER INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(unaudited)

6.	Earnings (Loss) Per Share

Basic earnings per share is computed by dividing net income (loss) available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. Diluted earnings per share are computed by assuming that any dilutive convertible securities outstanding were converted, with related preferred stock dividend requirements and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased by shares issuable upon exercise of those stock options for which the market price exceed the exercise prices, less shares which could have been purchased by us with the related proceeds. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.

If the Company had generated earnings during the nine months ended September 30, 2015, the Company would have added 938,363 of common equivalent shares to the weighted average shares outstanding to compute the diluted weighted average shares outstanding, excluding unexercised Series B warrants. The Company had unexercised Series B warrants of 34,521 outstanding at September 30, 2015. The remaining unexercised outstanding 34,521 Series B warrants would have added 38,837 common shares as permitted by the Amendment to the original Warrant agreement.

7.	Senior Convertible Notes and Warrants, Subordinated Notes and Warrants and Convertible Bridge Notes

On May 8, 2013, the Company consummated the sale of $9 million in aggregate principal amount of senior convertible notes (the “Senior Notes”) due on February 8, 2015 and warrants (the “Senior Warrants”) to various institutional investors (“Investors”). At closing, the Company received $2.76 million in net proceeds, after deducting placement agent fees of $240,000. Total offering expenses were $494,500 and were recorded as deferred financing fees. The $6,000,000 balance of the gross proceeds from the sale of Senior Notes was deposited into a series of control accounts in the Company’s name. The Senior Notes and Senior Warrants and the Subordinated Notes and Subordinated Warrants described below were issued in transactions exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. As of the end of the second quarter, 2014, all of the proceeds have been released, and the note holders have converted all amounts due under the note into shares of the Company’s common stock.

During the nine month period ended September 30, 2014, amortization of deferred financing fees amounted to $66,930.

Senior Warrants

The Warrants entitled the holders to purchase, in the aggregate, 9,875 shares of common stock. The Warrants were exercisable beginning November 8, 2013. On August 1, 2014, the Company entered into warrant exchange agreements (“Warrant Exchange Agreements”) with the holders (“Senior Warrant holders”) of the Senior Warrants. Pursuant to the Warrant Exchange Agreements, the Senior Warrant holders exchanged all of the Senior Warrants for shares of the Company’s stock (“Shares”) at a ratio of 1.7 Shares for each Senior Warrant exchanged, in a transaction exempt from registration under Section 3(a)(9) of the Securities Act of 1933 as amended.

Accounting for the Conversion Option and Senior Warrants

The Company first considered whether the Senior Notes met the criteria under ASC 480-10-25-14 to be recorded as a liability and determined that, due to their differing potential settlement features, they did not meet the criteria. The Company next considered whether the conversion option met the definition of a derivative, requiring it to be bifurcated and recorded as a liability. Pursuant to ASC 815-40, due to full-ratchet down-round price protection on the conversion price of the Senior Notes and the exercise price of the Warrants, the Company determined that the conversion features of the Senior Notes and the exercise features of the Senior Warrants are not indexed to the Company’s owned stock and must be recognized separately as a derivative liability in the consolidated balance sheet, measured at fair value and marked to market each reporting period until the Senior Notes have been fully paid or converted and the Senior Warrants fully exercised.

The change in fair value of the Senior Warrants of $2,125,576 was recorded as a non-cash loss on change in value of these derivatives for the nine month period ended September 30, 2014. The change in value of the conversion feature of the Senior Notes of $32 was recorded as a non-cash gain on change in value of the derivative for the nine month period ended September 30, 2014.

AXION POWER INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(unaudited)

Pursuant to the terms of the Senior Notes, the Company opted to pay the installment payments due prior to March 31, 2014 with shares of the Company’s common stock. During the nine months ended September 30, 2014, a loss on extinguishment was recognized in the amount of $1,192,189, for the difference between the installment amount and the fair value of the shares at the issuance date.

In addition, during the nine months ended September 30, 2014, debt discount amortization related to Senior Notes amounted to $863,793.

Subordinated Convertible Notes and Subordinated Warrants

Simultaneously with the closing of the $9 million principal amount Senior Note transaction, the Company sold $1 million principal amount of its Subordinated Convertible Notes (the “Subordinated Notes”) to investors consisting of management and directors of the Company and one individual investor. The sale of the Subordinated Notes did not carry any additional fees and expenses, so the Company received the entire $1 million in proceeds from the Subordinated Notes at closing. The Subordinated Notes are subordinated in right of repayment to the Senior Notes and mature 91 days subsequent to the maturity date of the Senior Notes. The Subordinated Notes bear interest at the rate of 8% per year. Once 2/3 of the Senior Notes have been repaid, then the Subordinated Notes may be converted and/or prepaid in cash so long as there is no Event of Default with respect to the Senior Notes and all Equity Conditions (as defined in the securities purchase agreement for the Senior Notes) are met. The conversion price for the Subordinated Notes is $462.00 per share. The holders of the Subordinated Convertible Notes were issued five year warrants to purchase 1,097 shares of Company common stock (“Subordinated Warrants”). Each Subordinated Warrant has an exercise price of $528.50 per share. All of the holders of the Subordinated Notes have verbally agreed to an extension of the maturity date of these notes to December 31, 2015, and the Company is not in default of its obligations under these notes.

The fair value of the warrants, issued in connection with the Subordinated Notes is $304,000 in the aggregate and was calculated using the Black-Scholes option pricing model with the following assumptions: (i) expected life of 5 years, (ii) volatility of 80%, (iii) risk free interest rate of 0.75% and (iv) dividend yield of zero.

During the nine months ended September 30, 2014, debt discount amortization related to the Subordinated Notes amounted to $64,352.

The outstanding principal balance at September 30, 2015 and December 31, 2014, related to the Subordinated Notes is $65,000.

Senior Convertible Bridge Notes

On August 7, 2015, the Company entered into a securities purchase agreement (“Agreement”) with several accredited investors, including one director of the Company (each, an “Investor”) pursuant to which it sold $600,000 principal amount of Senior Convertible Bridge Notes (“Notes”) to the Investors. The transaction was approved by the Company’s Board of Directors on August 5, 2015. The Notes carry an original issue discount (“OID”) of 15% so that the gross amount of proceeds to the Company (before expenses) was $510,000. The Notes bear interest at the rate of 12% per annum, and the interest is payable in cash upon repayment of the Notes or in shares of the Company’s common stock upon conversion of the Notes. The Notes have a term of 90 days from the date of issuance, which may be extended at the option of the Investor with respect to all or any portion of a Note (i) in the event that and for so long as an event of default is occurring under a Note, (ii) through the date that all shares issued upon conversion of the Note may be resold under Rule 144 without restriction and/or (iii) through the date that is 10 business days after the consummation of a change in control transaction, all as specified in the Notes. The conversion price for the Notes is $1.75 per share. The holders of the Notes were issued one five year warrant (“Warrants”) for each $1.00 of principal amount of the Note invested (510,000 Warrants in total). Each Warrant has an exercise price of $1.75 per share. The Agreement, Notes and Warrants contain other terms and provisions which are customary for a transaction of this nature, including standard representations and warranties and events of default. The transaction is exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D, as promulgated thereunder, and closed on August 10, 2015. All monies were received by August 11, 2015. $10,000 principal amount of the Senior Convertible Bridge Notes is held by an affiliate of the Company.

The fair value of the warrants issued in conjunction with the Senior Convertible Bridge Notes is $257,550 in the aggregate and was calculated using the binomial option model with the following assumptions: (i) expected life of 5 years, (ii) volatility of 100%, (iii) risk free interest rate of 1.59% and (iv) dividend yield of zero.

The conversion feature of the Senior Convertible Bridge Notes and the related warrants were determined not to be derivative instruments, in accordance with the guidance in ASC Topic 470-20 Debt with conversion and Other Options (“ASC 470”). The Company calculated the fair value of the warrants issued which were allocated based on the combined relative fair value of the notes and warrants. In addition, the Company determined that there was a beneficial conversion feature in the amount of $179,947.

The fair value of the warrants and the beneficial conversion feature were recorded as a debt discount to be amortized over the life of the Senior Convertible Bridge Notes.

The balance at September 30, 2015 related to the Senior Convertibles Bridge Notes was comprised of:

Senior Convertible Bridge notes payable, related and unrelated parties at August 10, 2015	$	600,000
Fair value allocation of warrants reported asa debt discount		(153,169	)
OID		(90,000	)
Beneficial conversion feature		(179,947	)
Debt discount amortization expense		238,410
Carrying value of Senior Convertible Bridge Notes at September 30, 2015	$	415,294

Notes with Landlords

On August 28, 2015, the Company’s signed a promissory note with each of the two landlords deferring lease payments until December 31, 2015. The aggregate amount of the promissory notes is $291,975 earning interest at 12% per annum compounded monthly and is included in notes payables on the Condensed Consolidated Balance Sheet as of September 30, 2015.

Public offering of common stock, Series A warrants and Series B warrants

Effective October 29, 2014, the Company consummated an underwritten public offering consisting of 53,572 shares of common stock ("Common Stock"), together with Series A warrants to purchase 53,572 shares of its Common Stock ("Series A Warrants") and Series B warrants to purchase 1,875,000 shares of its Common Stock (“Series B Warrants”) for gross proceeds to the Company of approximately $6.1 million and net proceeds of $5.5 million. The public offering price for each share of Common Stock, together with one Series A Warrant and one Series B Warrant, was $113.75. The Series A Warrants may be exercised for a period of five years and the Series B Warrants may be exercised for a period of 15 months. In connection with the offering, the Company granted to the underwriter a 45-day option to acquire up to 8,036 additional shares of Common Stock and/or up to 8,036 additional Series A Warrants and/or up to 281,250 additional Series B Warrants. The Series B warrants were not subject to the 1 for 35 reverse split. The Company also closed on the underwriter’s exercise of the over-allotment option on the Series A Warrants and the Series B Warrants. The Company’s Common Stock and Series A Warrants are now listed on the Nasdaq Capital Market under the symbols “AXPW” and “AXPWW”, respectively.

AXION POWER INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(unaudited)

Accounting for the Series B Warrants

Pursuant to ASC 815-40, due to the net settlement terms included in the Series B warrants, which requires an increased number of shares to be issued if the price of the Company’s common stock falls, the Company determined that the Series B Warrants were not indexed to the Company’s own stock and must be recognized separately as a derivative liability in the consolidated balance sheet, measured at fair value and marked to market each reporting period.

As of September 30, 2015 and December 31, 2014, the fair value of the Series B warrants was estimated to be $70,198 and $2,930,335, respectively.

The change in the fair value of the Series B warrant liability is as follows:

	Fair
	Value
Series B warranty liability, January 1, 2015	$	2,930,335
Series B warrants exercised		(3,500,126	)
Revaluation of remaining Series B warrants		639,989
Series B warrant liability, September 30, 2015	$	70,198

Fair Value Disclosure

The Company has one Level 3 financial instrument as of September 30, 2015 and December 31, 2014, the Series B warrants associated with the public offering of common stock. The Series B warrants are evaluated under the hierarchy of FASB ASC Subtopic 480-10, FASB ASC Paragraph 815-25-1 and FASB ASC Subparagraph 815-10-15-74 addressing embedded derivatives.

Going concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. At September 30, 2015 the Company’s working capital was $ (0.2) million. The financial resources of the Company will not provide sufficient funds for the Company’s operations beyond the fourth quarter of 2015, as those operations currently exist. The Company was successful in arranging the further funds needed to continue the execution of its business plan (see Subsequent Events). If the Company is unable to obtain shareholder approval which is required to receive the balance of the $7.15 million of the notes issued on November 5, 2015 additional funding will be required to fund the Company’s ongoing operations, working capital, and capital expenditures beyond the first quarter of 2016. Failure to obtain such funds on terms acceptable to the Company’s management will require management to substantially curtail, if not cease, operations, which will result in a material adverse effect on the financial position and results of operations of the Company. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might occur if the Company is unable to continue as a going concern.

10.

Letter of Intent with LCB International, Inc.

On June 13, 2015, the Company entered into a Binding Letter of Intent with LCB International, Inc., a British Virgin Islands corporation, regarding an exclusive license of the Company’s intellectual property portfolio of PbC technology for various applications (including, but not limited to related e-energy solutions for motive and stationary applications, including, but not limited to e-scooter, commercial, light and off road vehicles and grid storage (“Products”) of the Company’s PbC technology (“Technology”) in the People’s Republic of China, Taiwan, Macao and Hong Kong (“Territory”).

AXION POWER INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(unaudited)

As of September 30, 2015, LCB had paid the $250,000 earnest money deposit to the Company, which is included in other current liabilities in the accompanying September 30, 2015 balance sheet.

On August 17, 2015, the Company reported that it had extended the exclusivity period under its Binding Letter of Intent with LCB until September 13, 2015. The exclusivity period expired with no further extension although the Company has continued to negotiate in good faith with regard to reaching a comprehensive set of agreements as contemplated under the Binding Letter of Intent. The parties are currently in discussion regarding an alternate structure focused on technology licensing.

11.

Subsequent events

$9 Million Financing Transaction

On November 4, 2015, the Company entered into a financing transaction for the sale of Senior Notes (“Notes”) and Warrants issued by the Company (“Warrants”) with gross proceeds of $9 million to the Company. Upon closing of the sale of the Notes and Warrants (“Closing”), the Company received cash proceeds of $1.85 million and deposited an additional $7.15 million into a series of control accounts in the name of the Company. The Company is permitted to withdraw funds from our control accounts (i) in connection with certain conversions of the Notes or (ii) otherwise, as follows: $1,000,000 on each 30 day anniversary of the commencing on the 30^th day after the Effective Date until there are no more funds in the control accounts (each, a “Funds Release”), subject in each instance to equity conditions set forth in the Notes.

The Company received approximately $1.7 million in net proceeds at Closing, which occurred on November 5, 2015, after deducting our placement agent’s fee of $138,750. Offering expenses, other than our placement agent’s fee, are approximately $100,000, which will be paid out of the proceeds at Closing. At each Funds Release, the Company will receive approximately $925,000 in net proceeds, after deducting the placement agent’s fee of $75,000.

The following is intended to provide a summary of the terms of the agreements and securities described above. This summary is qualified in its entirety by reference to the full text of the agreements, each of which is attached as an exhibit to our Current Report on Form 8-K dated November 4, 2015. Readers should review those agreements for a complete understanding of the terms and conditions associated with these transactions.

Securities Purchase Agreement

The Notes and Warrants were issued pursuant to the terms of a Securities Purchase Agreement (“Purchase Agreement”) among us and the Investors. The Purchase Agreement provided for the sale of the Notes and Warrants for gross proceeds of $9 million to us.

Notes

Ranking

The Notes are senior unsecured obligations of the Company.

Maturity Date

Unless earlier converted or redeemed, the Notes mature 14 months from the Closing (“Maturity Date”), subject to the right of the investors to extend the date (i) if an event of default under the Notes has occurred and is continuing or any event shall have occurred and be continuing that with the passage of time and the failure to cure would result in an event of default under the Notes and (ii) for a period of 20 business days after the consummation of a fundamental transaction if certain events occur.

Interest

The Notes bear interest at the rate of 9% per annum which is compounded monthly, on the first calendar day of each calendar month. The interest rate will increase to 18% per annum upon the occurrence and continuance of an event of default (as described below). Interest on the Notes is payable in arrears on each installment date (as defined below). If a holder elects to convert or redeem all or any portion of a Note prior to the Maturity Date, all accrued and unpaid interest on the amount being converted or redeemed will also be payable. If the Company electe to redeem all or any portion of a Note prior to the Maturity Date, all accrued and unpaid interest on the amount being redeemed will also be payable. The amount of interest due at any time is the amount of any interest that, but for any conversion, installment conversion, acceleration or redemption hereunder on such given date, would have accrued with respect to the conversion amount or installment amount being converted or redeemed under the Note at the interest rate for the period from such given date through the maturity date of the Note.

AXION POWER INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(unaudited)

Conversion

All amounts due under the Notes are convertible at any time, in whole or in part, at the option of the holders into shares of our common stock at a fixed conversion price, which is subject to adjustment as described below. The Notes are initially convertible into shares of our common stock at the initial price of $1.23 per share. This conversion price is subject to adjustment for stock splits, combinations or similar events and “full ratchet” antidilution provisions.

Payment of Principal and Interest

The Company has agreed to make amortization payments with respect to the principal amount of each Note in shares of our common stock, subject to the satisfaction of certain equity conditions, or at our option, in cash on each of the following installment dates:

the twenty-first trading day after the earlier of (x) the initial effective date of a registration statement filed in connection with this offering or (y) January 20, 2016; the first trading day of the calendar month immediately following the initial installment date (or if such date is less than twenty trading days after the initial installment date, the second calendar month immediately following the initial installment date to the extent); and then each month through and including the Maturity Date, each in an amount equal to 1/12 of the principal amount of each Note.

Acceleration and Deferral of Amortization Amounts

During each period after an installment date and prior to the immediately subsequent installment date, a holder may elect to accelerate the amortization of the Note at the applicable amortization conversion price for such prior installment date with respect to any given installment period, the holder may not elect to effect any acceleration during such installment period if either (x) in the aggregate, all the accelerations in such installment period exceeds the sum of two (2) other installment amounts, or (y) accelerations have been consummated in four (4) prior installment periods.

The holder of a Note may, at the holder’s election by giving notice to us, defer the payment of the installment amount due on any installment dates, in whole or in part, to another installment date, in which case the amount deferred will become part of such subsequent installment date and will continue to accrue interest.

Events of Default

The Notes contain standard and customary events of default including but not limited: (i) failure to register our Common Stock within certain time periods; (ii) failure to make payments when due under the Notes; and (iii) bankruptcy or insolvency of the Company.

If an event of default occurs, each holder may require us to redeem all or any portion of the Notes (including all accrued and unpaid interest thereon), in cash, at a price equal to the greater of (i) up to 125% of the amount being redeemed, depending on the nature of the default, and (ii) the intrinsic value of the shares of Common Stock then issuable upon conversion of the Note.

Fundamental Transactions

The Notes prohibit us from entering into specified transactions involving a change of control, unless the successor entity assumes in writing all of our obligations under the Notes under a written agreement.

In the event of transactions involving a change of control, the holder of a Note will have the right to require us to redeem all or any portion of the Note it holds (including all accrued and unpaid thereon) at a price equal to the greater 125% of the amount of the Note being redeemed and the intrinsic value of the shares of Common Stock then issuable upon conversion of the Note being redeemed.

Limitations on Conversion and Issuance

A Note may not be converted and shares of common stock may not be issued under the Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of our outstanding shares of common stock. At each holder’s option, the note blocker may be raised or lowered to any other percentage not in excess of 9.99%.

Warrants

The Warrants entitle the holders of the Warrants to purchase, in aggregate, 10,975,608 million shares of our common stock. The Warrants will expire 24 months from the Closing Date. The Warrants are initially be exercisable at an exercise price equal to the lower of $1.29 and 85% of the market price at the time of exercise, subject to certain adjustments.

AXION POWER INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(unaudited)

The Warrants may be exercised for cash, provided that, if there is no effective registration statement available registering the exercise of the Warrants, the Warrants may be exercised on a cashless basis. This prospectus does not cover the shares of common stock issuable from time to time upon exercise of the Warrants. The Company anticipates filing a registration statement covering the shares of common stock issuable upon the exercise of the Warrants prior to the time the Warrants become exercisable.

The exercise price of the Warrants is subject to adjustment for stock splits, combinations or similar events, and, in this event, the number of shares issuable upon the exercise of the Warrant will also be adjusted so that the aggregate exercise price shall be the same immediately before and immediately after the adjustment. In addition, the exercise price is also subject to a “full ratchet” anti-dilution adjustment if we issue or are deemed to have issued securities at a price lower than the then applicable exercise price.

Limitations on Exercise

The Warrants may not be exercised if, after giving effect to the exercise, the holder of the Warrant together with its affiliates would beneficially own in excess of 4.99% of our outstanding shares of common stock. At each holder’s option, the warrant blocker applicable to the exercise of the Warrants may be raised or lowered to any other percentage not in excess of 9.99%.

Fundamental Transactions

The Warrants prohibit us from entering into specified transactions involving a change of control, unless the successor entity assumes all of our obligations under the Warrants under a written agreement before the transaction is completed.

Registration Rights Agreement

The Company entered into a Registration Rights Agreement with the Holders as of the date of Closing. Under this Agreement, the Company has agreed to register 200% of the shares issuable under the Notes and 125% of the shares issuable under the Warrants, with filing to occur no later than 15 days of the Closing and with effectiveness to occur no later than 75 days of the Closing. If we are unable to meet either of these deadlines, we may be required to pay certain cash damages under the Registration Rights Agreement or, with the passage of additional time, an Event of Default under the Notes may occur.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q in particular the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements represent our expectations, beliefs, intentions or strategies concerning future events, including, but not limited to, any statements regarding our assumptions about financial performance; the continuation of historical trends; the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations; and the economy in general or the future of the energy storage device industry, all of which are subject to various risks and uncertainties.

When used in this Quarterly Report on Form 10-Q as well as in reports, statements, and information we have filed with the Securities and Exchange Commission (the “Commission” or “SEC”), in our press releases, presentations to securities analysts or investors, in oral statements made by or with the approval of an executive officer, the words or phrases “believes,” “may,” “will,” “expects,” “should,” “continue,” “anticipates,” “intends,” “will likely result,” “estimates,” “projects” or similar expressions and variations thereof are intended to identify such forward-looking statements. However, any statements contained in this periodic report that are not statements of historical fact may be deemed to be forward-looking statements. We caution that these statements by their nature involve risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors.

In the third quarter of 2014, we determined that the most efficient use of our resources is to operate as a technology-based enterprise to promote and market our proprietary PbC technology and to streamline manufacturing efforts to focus on our total lead-activated carbon negative electrode.

In the fourth quarter of 2014, we took steps to evaluate and implement the staged phase out of the manufacturing of lead acid batteries at our leased Clover Lane facility and the redirection of our efforts toward next generation carbon electrode manufacturing at our leased Green Ridge Road facility. We also continued developing third party PbC battery suppliers, developing energy storage systems and addressing various off-grid applications for our products.. We believe that this streamlined effort with regard to our carbon negative electrode manufacturing will provide us with the best opportunity to commercialize our technology and thereby provide the potential to improve our financial condition, cash flow and market presence. It is our primary goal to become the leading supplier of carbon electrode assemblies for specialty applications in several global markets.

Recent Events

In January 2015, Richard Bogan and Donald Farley were appointed as Directors and Mr. Farley was appointed as Chairman.

On January 28, 2015 we announced a strategic marketing, sales and reselling agreement with privately owned Portland OR-based Pacific Energy Ventures LLC (PEV), a technology and project development firm specializing in the renewable energy and energy storage sectors. Under the agreement, PEV will represent Axion Power and its PbC-based products nationally on a non-exclusive basis, initially focused in the area that comprises the power grid of PJM Interconnection LLC, a Regional Transmission Organization serving all or parts of 13 states in the Northeast and the District of Columbia. PEV will promote the sale of PbC and PowerCube products for use with renewable energy and energy storage projects.

On October 3, 2015 Charles Trego, CFO resigned as our Chief Financial Officer although he remains as a director.

On October 6, 2015, the Company engaged Phoenix Capital Resources to assist in identifying and engaging strategic partners to assist us in the commercial development of the Company’s technology.

Binding Letter of Intent with LCB International, Inc.

On June 13, 2015, the Company entered into a Binding Letter of Intent with LCB International, Inc., a British Virgin Islands corporation, regarding an exclusive license of the Company’s intellectual property portfolio of PbC technology for various applications (including, but not limited to related e-energy solutions for motive and stationary applications, including, but not limited to e-scooter, commercial, light and off road vehicles and grid storage of the Company’s PbC technology in the People’s Republic of China, Taiwan, Macao and Hong Kong.

Despite negotiations between the parties during the third quarter of 2015, they were unable to reach agreement on definitive documentation, and the parties are currently exploring the possibility of a revised transaction structure revolving around a technology license structure.

Sharon PA Project

On June 12, 2015, the Company entered into a 30 month and 18 day option to enter into an energy frequency regulation lease for the subject property. The option fee is $4,000 per month for months 1 thru 18 and $6,000 per month thereafter, and the Company can extend the option for an additional six months upon notice at least 30 days prior to the initial lease term. The option agreement permits the Company to exercise the option at any time during the option term.

The Company is also preparing filings seeking regulatory approval for a 2.5MW frequency regulation project at Sharon PA that is enabled by a lease option for the site including possible expansion to a 12.5MW project at a later date, subject to regulatory approval. Carbon electrodes were prepared for PbC battery manufacturing trials with select U.S. based battery companies, a key goal of the company’s strategy. Commercial development progress was made on applications for less complicated drop-in uses of PbC batteries. Activities to engage licensing and development partners for key markets are also ongoing in keeping with the Company’s strategy.

On June 26, 2015, the Company executed an amendment pursuant to which it extended the lease option for an additional six months upon the same terms and conditions.

Reverse Stock Split

On July 14, 2015, we effected a 1-for-35 reverse split of our common stock and Series A warrants. The number of Series B warrants was not impacted by the 1-for -35 reverse split. All share related and per share information has been adjusted to give effect to the reverse stock split from the beginning of the earliest period presented.

Convertible Bridge Notes

On August 7, 2015, the Company entered into a securities purchase agreement (“Agreement”) with several accredited investors, including one director of the Company (each, an “Investor”) pursuant to which it sold $600,000 principal amount of Senior Convertible Notes (“Notes”) to the Investors. The transaction was approved by the Company’s Board of Directors on August 5, 2015. The Notes carry an original issue discount of 15% so that the gross amount of proceeds to the Company (before expenses) is $510,000. The Notes bear interest at the rate of 12% per annum, and the interest is payable in cash upon repayment of the Notes or in shares of the Company’s common stock upon conversion of the Notes. The Notes have a term of 90 days from the date of issuance, which may be extended at the option of the Investor with respect to all or any portion of a Note (i) in the event that and for so long as an event of default is occurring under a Note, (ii) through the date that all shares issued upon conversion of the Note may be resold under Rule 144 without restriction and/or (iii) through the date that is 10 business days after the consummation of a change in control transaction, all as specified in the Notes. The conversion price for the Notes is $1.75 per share. The holders of the Notes will be issued one five year warrant (“Warrants”) for each $1.00 of principal amount of the Note invested (510,000 Warrants in total). Each Warrant has an exercise price of $1.75 per share. The Agreement, Notes and Warrants contain other terms and provisions which are customary for a transaction of this nature, including standard representations and warranties and events of default. The transaction is exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D, as promulgated thereunder, and closed on August 7, 2015. All monies were received on August 11, 2015.

Nasdaq Notification

On August 25, 2015, Axion Power International, Inc. (the “Company”) received a written notification from the Nasdaq Stock Market LLC that it did not meet the minimum of $2,500,000 in stockholders’ equity for continued listing (as set forth in Listing Rule 5550(b)(1)) as a result of the report of shareholders equity of $570,824 in the Company’s Form 10-Q for the period ended June 30, 2015, which was largely as a result of the valuation of the Company’s Series B Warrants for the quarter ended June 30, 2015. The notification does not result in the immediate delisting of the Company's common stock, and its common stock will continue to trade uninterrupted on the Nasdaq Capital Market.

The Company submitted a plan to regain compliance on October 9, 2015. If the plan is accepted, the Company can be granted an extension of up to 180 calendar days to evidence compliance. Nasdaq is continuing to review the plan, and the Company has submitted additional information at the request of Nasdaq.

$9 Million Financing Transaction

On November 4, 2015, the Company entered into a financing transaction for the sale of Senior Notes (“Notes”) and Warrants issued (“Warrants”) with gross proceeds of $9 million to us. Upon closing of the sale of the Notes and Warrants (“Closing”), the Company received cash proceeds of $1.85 million and deposited an additional $7.15 million into a series of control accounts in our name. The Company is permitted to withdraw funds from our control accounts (i) in connection with certain conversions of the Notes or (ii) otherwise, as follows: $1,000,000 on each 30 day anniversary of the commencing on the 30^th day after the Effective Date until there are no more funds in the control accounts (each, a “Funds Release”), subject in each instance to equity conditions set forth in the Notes.

The Company received approximately $1.7 million in net proceeds at Closing, which occurred on November 5, 2015, after deducting our placement agent’s fee of $138,750. Offering expenses, other than the placement agent’s fee, are approximately $100,000, which will be paid out of the proceeds at Closing. At each Funds Release, the Company will receive approximately $925,000 in net proceeds, after deducting our placement agent’s fee of $75,000.

Securities Purchase Agreement

Notes

Ranking

The Notes are senior unsecured obligations of the Company.

Maturity Date

Interest

The Notes bear interest at the rate of 9% per annum which is compounded monthly, on the first calendar day of each calendar month. The interest rate will increase to 18% per annum upon the occurrence and continuance of an event of default (as described below). Interest on the Notes is payable in arrears on each installment date (as defined below). If a holder elects to convert or redeem all or any portion of a Note prior to the Maturity Date, all accrued and unpaid interest on the amount being converted or redeemed will also be payable. If we elect to redeem all or any portion of a Note prior to the Maturity Date, all accrued and unpaid interest on the amount being redeemed will also be payable. The amount of interest due at any time is the amount of any interest that, but for any conversion, installment conversion, acceleration or redemption hereunder on such given date, would have accrued with respect to the conversion amount or installment amount being converted or redeemed under the Note at the interest rate for the period from such given date through the maturity date of the Note.

Conversion

Payment of Principal and Interest

Acceleration and Deferral of Amortization Amounts

Events of Default

Fundamental Transactions

Limitations on Conversion and Issuance

Warrants

The Warrants may be exercised for cash, provided that, if there is no effective registration statement available registering the exercise of the Warrants, the Warrants may be exercised on a cashless basis. This prospectus does not cover the shares of common stock issuable from time to time upon exercise of the Warrants. We anticipate that we will file a registration statement covering the shares of common stock issuable upon the exercise of the Warrants prior to the time the Warrants become exercisable.

Limitations on Exercise

Fundamental Transactions

Registration Rights Agreement

The Company entered into a Registration Rights Agreement with the Holders as of the date of Closing. Under this Agreement, the Company has agreed to register 200% of the shares issuable under the Notes and 125% of the shares issuable under the Warrants, with filing to occur no later than 15 days of the Closing and with effectiveness to occur no later than 75 days of the Closing. If the Company is unable to meet either of these deadlines, we may be required to pay certain cash damages under the Registration Rights Agreement or, with the passage of additional time, an Event of Default under the Notes may occur.

Key Performance Indicators, Material Trends and Uncertainties

We utilize appropriate non-financial measures to evaluate the performance of our research and development and engineering activities and projects with prospective customers. Our demonstration projects entail extended periods of time to assess our energy devices over multiple charge and discharge cycles. Further, the results of our demonstration projects do not lend themselves to simple measurement and presentation.

The three most significant financial metrics for our business during our initial commercialization phase to date have been:

Revenue growth of our PbC technologies – for the three and nine months ended September 30, 2015, we have not experienced significant revenue with respect to our PbC technologies, as we have not yet consummated a significant commercial contract for these technologies. Unless and until a commercial contract and/or license or other strategic relationship is entered into, we cannot expect to see material revenue, if any, from our products.

Achieving an acceptable and competitive level of operating profit from our revenue (as measured by EBITDA).

Ensuring we have sufficient capital to fund our short and long-term business requirements.

We will continue to characterize and perfect our PbC products through working with targeted prospective customers in a number of projects as we move into commercialization. While we are working toward successful commercialization of our PbC products, we cannot provide assurances that the PbC products will be successful in their present design or that further research and development will not be needed. The successful completion of present and future characterization and demonstration projects is critical to the development and acceptance of our PbC technology.

We must continue to improve methodologies for manufacturing carbon electrode assemblies for our energy storage devices in commercial quantities. While we have assembled an engineering team that we believe can accomplish this goal, and are adding to it as we go forward, there is no assurance that we will be able to successfully commercialize our PbC products in large quantities.

Financing Activities

Effective October 29, 2014, the Company consummated an underwritten public offering consisting of 53,572 shares of common stock ("Common Stock"), together with Series A warrants to purchase 53,572 shares of its Common Stock ("Series A Warrants") and Series B warrants to purchase 1,875,000 shares of its Common Stock (“Series B Warrants”) for gross proceeds to the Company of approximately $6.1 million and net proceeds of $5.5 million. The public offering price for each share of Common Stock, together with one Series A Warrant and one Series B Warrant, was $113.75. The Series A Warrants may be exercised for a period of five years and the Series B Warrants may be exercised for a period of 15 months. In connection with the offering, the Company granted to the underwriter a 45-day option to acquire up to 8,036 additional shares of Common Stock and/or up to 8,036 additional Series A Warrants and/or up to 281,250 additional Series B Warrants. The Series B warrants were not subject to the 1 for 35 reverse split. The Company has also closed on the underwriter’s exercise of the over-allotment option on the Series A Warrants and the Series B Warrants. The Company’s Common Stock and Series A Warrants are now listed on the NASDAQ Capital Market under the symbols “AXPW” and “AXPWW”, respectively.

As part of the underwritten public offering which we closed on October 29, 2014, resulting in net proceeds to us of $5.5 million, we issued Series B warrants to the investors. These Series B warrants convert into shares of our common stock, based on a market price formula, which is detailed in the Series B warrant agreement. We were required to provide these Series B warrants as a final condition to funding the offering. As of September 30, 2015, 2,091,729 Series B warrants have been exercised, and 34,521 Series B warrants remain to be exercised. Inclusive of issuance of shares of our common stock issued for the exercise of Series B warrants through September 30, 2015, we have 3,934,728 shares of our common stock issued and outstanding.

As of June 15, 2015, the Company received the agreement of the holders of over 65% of the then remaining outstanding 619,447 Company Series B warrants to amend and restate the May 2015 amendment to the October 2014 warrant agreement (“Agreement”), as permitted pursuant to Section 8.8 of the Agreement covering the Series B warrants, among the Company, the original holders of the Company Series B warrants and the Company’s warrant agent, Continental Stock Transfer& Trust. The parties have determined to eliminate the provision set forth in Section 2(b) of the original amendment, which has necessitated the amendment and restatement to the original amendment.

The amendments to the terms of the Series B warrants are as follows:

•

The definition of the term “Market Price” in Section 3.3.2.1 of the Warrant Agreement (which covers the further cashless exercises of the Series B warrants) is amended to be the higher of (i) $0.10 ($3.50 post split) and (ii) 85% of the arithmetic average of the sum of the five lowest per share volume weighted average prices for the 15 trading days on the Nasdaq Capital Market (or if not on the Nasdaq Capital Market, on the Company’s then principal trading market) immediately prior to the date of exercise).

•

On August 12, 2015 the Company filed a Definitive Schedule 14A proxy statement with the Commission requesting shareholder approval of the following amendment to the definition of “Market Price” (“Fixed Market Price Definition”): “Market Price” shall mean $0.10 ($3.50 post split; subject to adjustment for any stock split, reverse stock split, stock dividend, stock combination, recapitalization or other similar transaction) . The Company shall take all steps reasonably necessary to obtain such shareholder approval of the Fixed Market Price Definition as soon as practicable thereafter, but in no event later than September 12, 2015, and the Company shall cause the Board of Directors of the Company to recommend that the shareholders approve such amendment. If the Company is able to obtain such shareholder approval, the definition of Market Price in the first sentence of this subparagraph a. shall automatically be replaced with the Fixed Market Price Definition.

•

The number of Series B warrants was not affected by the 1-for-35 reverse stock split and instead each warrant is exercisable into 1/35 of a share on a cash exercise basis. The Company’s shareholders did not approve the amendment to the Market Price described above.

Convertible Bridge Notes

On August 7, 2015, the Company entered into a securities purchase agreement (“Agreement”) with several accredited investors, including one director of the Company (each, an “Investor”) pursuant to which it sold $600,000 principal amount of Senior Convertible Notes (“Notes”) to the Investors. The transaction was approved by the Company’s Board of Directors on August 5, 2015. The Notes carry an original issue discount of 15% so that the gross amount of proceeds to the Company (before expenses) is $510,000. The Notes bear interest at the rate of 12% per annum, and the interest is payable in cash upon repayment of the Notes or in shares of the Company’s common stock upon conversion of the Notes. The Notes have a term of 90 days from the date of issuance, which may be extended at the option of the Investor with respect to all or any portion of a Note (i) in the event that and for so long as an event of default is occurring under a Note, (ii) through the date that all shares issued upon conversion of the Note may be resold under Rule 144 without restriction and/or (iii) through the date that is 10 business days after the consummation of a change in control transaction, all as specified in the Notes. The conversion price for the Notes is $1.75 per share. The holders of the Notes will be issued one five year warrant (“Warrants”) for each $1.00 of principal amount of the Note invested (510,000 Warrants in total). Each Warrant has an exercise price of $1.75 per share. The Agreement, Notes and Warrants contain other terms and provisions which are customary for a transaction of this nature, including standard representations and warranties and events of default. The transaction is exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D, as promulgated thereunder, and closed on August 7, 2015. All monies were received on August 11, 2015.

Results of Operations

Net sales through 2015 were primarily derived from the sale of lead - acid batteries for specialty collector and racing cars; sales of AGM batteries and flooded lead- acid batteries. Net sales of PbC batteries and PbC energy storage components and devices and from the sales of products related to advanced battery applications for our PbC technology are not a significant component of historically reported net sales through 2015.

Cost of tangible goods sold include raw materials, components, labor, and allocated manufacturing overhead to produce batteries and provide components for PbC energy storage devices and lead-acid batteries sold to customers. Cost of tangible goods sold represented in our current financial statements may not be indicative of the future costs to produce batteries and provide components for PbC energy storage devices. Also included in tangible cost of goods sold are provisions for inventory valuation and obsolescence reserves.

Cost of goods sold – idle capacity include direct production costs in excess of charges allocated to our finished goods in production. Operating costs include direct and indirect labor, production supplies, rent, insurance, property taxes, utilities, and repairs and maintenance. Our charges for labor and overhead allocated to our finished goods are determined on a basis which is calculated presuming normal capacity utilization of two shifts a day, five days per week, which is lower than our actual production costs incurred. Operating costs in excess of production allocations are expensed in the period incurred rather than to the cost of finished goods produced. Cost of goods sold - idle capacity for the three months and nine months ended September 30, 2015 was $399,172 and $1,344,082, respectively. Cost of goods sold - idle capacity for the three and nine months ended September 30, 2014 was $363,086 and $1,216,933 respectively.

Research and development expense include expenses to design, develop and test advanced batteries, carbon electrode assemblies and systems for our energy storage products with prospective customers based on our patented lead carbon technology. Also included are materials consumed in the production of pilot plant production and our engineering activities.

Selling, general and administrative expense includes business development, sales and marketing expenses; administrative expenses; and, expenses associated with being a public company.

Summarized selected financial data for the three months ended September 30, 2015 and 2014:

	2015			2014			Change			% Change
Net sales	$	166,980		$	319,463		$	(152,483	)		48	%
Cost of tangible goods sold		233,405			545,752			(312,347	)		57	%
Cost of goods sold – idle capacity		399,172			363,086			36,086			10	%
Gross loss		(465,597	)		(589,375	)		123,778			21	%

Research and development expense		218,948			449,039			(230,091	)		51	%
Selling, general and administrative expense		609,463			983,712			(374,249	)		38	%
Other (income)		(4,591	)		(3,937	)		654			17	%
Operating loss		(1,289,417	)		(2,018,189	)		728,772			36	%

Change in value senior warrants		-			511,520			(511,520	)		100	%
Change in value of Series B warrants		(1,180,861	)		-			(1,180,861			100	%
Interest expense, note payable		26,245			5,271			20,974			398	%
Debt discount on amortization expense		238,410			81,286			157,124			193	%
Interest on convertible notes		1,455			26,631			(25,176	)		95	%
Net loss before income taxes	$	(374,666	)	$	(2,642,897	)	$	2,268,231			86	%

Reconciliation of net loss to EBITDA loss

	2015			2014			Change			% Change
GAAP Net loss before income taxes	$	(374,666	)	$	(2,642,897	)	$	2,268,231			86	%
Change in value senior warrants		-			511,520			(511,520	)		100	%
Change in value of Series B warrants		(1,180,861	)		-			(1,180,861	)		100	%
Interest expense, note payable		26,245			5,271			20,974			398	%
Interest on convertible notes		1,455			26,631			25,176			95	%
Depreciation expense		71,920			349,319			(277,399	)		79	%
Debt discount on amortization expense		238,410			81,286			157,124			193	%
Stock based consulting expense		49,500			-			49,500			100	%
Stock based compensation expense		54,237			39,061			15,176			39	%
EBITDA loss (1)	$	(1,113,760	)	$	(1,629,809	)	$	516,049			32	%

(1)

EBITDA, a non-GAAP financial measure, is defined as earnings before interest expense and interest income, income taxes, depreciation, amortization, stock based compensation, derivative revaluations, change in value of senior warrants, change in value of conversion feature of senior warrants, extinguishment loss on senior notes conversion and impairment of assets. EBITDA is used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business.

Summarized selected financial data for the nine months ended September 30, 2015 and 2014:

	2015			2014			Change			% Change
Net sales	$	510,536		$	4,529,387		$	(4,018,851	)		89	%
Cost of tangible goods sold		639,142			4,787,461			(4,148,319	)		87	%
Cost of goods sold idle – capacity expense		1,344,082			1,216,933			127,149			10	%
Gross loss		(1,472,688	)		(1,475,007	)		2,319			0	%

Research and development expense		719,119			1,475,920			(756,801	)		51	%
Selling, general and administrative expense		2,362,520			3,489,668			(1,127,148	)		32	%
Other (income )		(4,599	)		(62,971	)		58,372			93	%
Operating loss		(4,549,728	)		(6,377,624	)		1,827,896			29	%

Change in value senior warrants		-			2,125,576			(2,125,576	)		100	%
Change in value conversion feature senior notes		-			(32	)		32			100	%
Debt discount on amortization expense		238,410			928,145			(689,735	)		74	%
Change in value of Series B warrants		639,989			-			639,989			100	%
Interest expense, note payable		34,891			15,096			19,795			131	%
Extinguishment loss on senior notes conversion		-			1,192,189			(1,192,189	)		100	%
Placement agent warrants		23,826			58,669			(34,843	)		59	%
Interest on convertible notes		4,232			584,322			(580,090	)		99	%
Net loss before income taxes	$	(5,491,076	)	$	(11,281,589	)	$	5,790,513			51	%

Reconciliation of net loss to EBITDA loss

	2015			2014			Change			% Change
GAAP Net loss before income taxes	$	(5,491,076	)	$	(11,281,589	)	$	5,790,513			51	%
Change in value senior warrants		-			2,125,576			(2,125,576	)		100	%
Change in value conversion feature senior notes		-			(32	)		32			100	%
Debt discount amortization expense		238,410			928,145			(689,735	)		74	%
Change in value of Series B warrants		639,989,			-			639,989			100	%
Interest expense, note payable		34,891			15,096			19,795			131	%
Extinguishment loss on senior notes conversion		-			1,192,189			(1,192,189	)		100	%
Placement agent warrants		23,826			58,669			(34,843	)		59	%
Interest on convertible debt		4,232			584,322			(580,090	)		99	%
Depreciation expense		228,969			1,087,022			(858,053	)		79	%
Stock based consulting expense		49,500			-			49,500			100	%
Share based compensation expense		194,771			116,598			78,173			67	%
EBITDA loss (1)	$	(4,052,662	)	$	(5,174,004	)	$	1,121,342			22	%

(1)

Summary of Consolidated Income for the three and nine months ended September 30, 2015 and September 30, 2014

Net Sales

Net sales for the three months ended September 30, 2015 were $0.2 million compared to $0.3 million for the same period in 2014. Net sales for the nine months ended September 30, 2015 were $0.5 million compared to $4.5 million for the same period in 2014. We have three customers that accounted for approximately 68% of net sales for nine months ended September 30, 2015 as compared to one customer at 76% of net sales for nine months ended September 30, 2014. The decrease in sales is due primarily to the change in strategic direction that the Company is undertaking to diversify its focus from single large projects to providing products to a wider array of customers.

Cost of Tangible Goods Sold

Costs of tangible goods sold for the three months ended September 30, 2015 were $0.2 million compared to $0.5 million for the same period in 2014. Costs of tangible goods sold for the nine months ended September 30, 2015 were $0.6 million compared to $4.8 million for the same period in 2014. The decrease in cost of sales was commensurate with the decrease in net sales.

Cost of Goods Sold – Idle Capacity

The cost of goods sold idle-capacity for the three months ended September 30, 2015 was $0.4 million compared to $0.4 million for the three months ended September 30, 2014. The cost of goods sold idle-capacity for the nine months ended September 30, 2015 was $1.3 million and $1.2 million for the nine months ended September 30, 2014.

Gross Loss

Gross loss for the three months ended September 30, 2015 was $0.5 million compared to $0.6 million for the same period in 2014. Gross loss for the nine months ended September 30, 2015 was $1.5 million compared to $1.5 million for the same period in 2014.

Research and Development Expenses

Research and development expenses were $0.2 million for the three months ended September 30, 2015 compared to $0.4 million for the three months ended September 30, 2014. Research and development expenses for the nine months ended September 30, 2015 were $0.7 million compared to $1.5 million for the nine months ended September 30, 2014. The decrease in research and development expense was due primarily to reduced headcount, reduced inventory use for testing, and reduced depreciation expense for research and development equipment.

Selling, General and Administrative Expenses

Selling, general and administrative expense for the three months ended September 30, 2015 were $0.6 million compared to $1.0 million for the three months ended September 30, 2014. Selling, general and administrative expense for nine months ended September 30, 2015 was $2.4 million compared to $3.5 million for the nine months ended September 30, 2014. The decrease in selling, general and administrative expense was due primarily to reduced placement agent fees and reductions in headcount.

Liquidity and Capital Resources

Our sources of liquidity have historically been cash generated from issuances of our equity and debt securities. From inception through September 30, 2015, we have generated revenue from operations that was not significant enough to produce an operating profit.

At September 30, 2015, the Company had negative working capital of $(0.02) million. The financial resources of the Company will not provide sufficient funds for the Company’s operations beyond the fourth quarter of 2015, as those operations currently exist. The Company was successful in arranging the further funds needed to continue the execution of its business. If the Company is unable to obtain shareholder approval which is required to receive the balance of the $7.15 million of the notes issued on November 5, 2015 additional funding will be required to fund the Company’s ongoing operations, working capital, and capital expenditures beyond the first quarter of 2016. Failure to obtain such funds on terms acceptable to the Company’s management will require management to substantially curtail, if not cease, operations, which will result in a material adverse effect on the financial position and results of operations of the Company. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might occur if the Company is unable to continue as a going concern.

Working Capital

At September 30, 2015, the Company had negative working capital of $(0.2) million compared to positive working capital of $4.0 million at December 31, 2014.

Cash Flows from Operating Activities

Net cash used in operations for the nine months ended September 30, 2015 was $3.5 million of which $4.0 million was used to fund the operations of the business offset by $0.5 million which was provided by operating assets and liabilities. Net cash used for the nine months ended September 30, 2014 was $4.0 million. Of the net cash used of $4.0 million for the same period in 2014, $5.1 million was used to fund the operations of the business while $1.1 million was provided by operating assets and liabilities.

Cash Flows from Investing Activities

Net cash used by investing activities for of the nine months ended September 30, 2015 was zero. Net cash used in investing activities for the nine months ended September 30, 2014, was $0.1 million. Investing activities were primarily for purchases of property and equipment.

Cash Flows from Financing Activities

Net cash provided in financing activities for the first nine months ended September 30, 2015 was $0.5 million received from proceeds from Convetible Bridge Notes and $0.1 was used to repay short term debt. For 2014, net cash provided by financing was due to $3.8 million in funds being released from restricted cash and $0.3 million used to repay short term debt.

Critical Accounting Policies, Judgments and Estimates

Our significant accounting policies are fundamental to understanding our results of operations and financial condition. Some accounting policies require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. These policies are described in “Critical Accounting Policies, Judgments and Estimates” and Note 2 (Accounting Policies) to Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014. During the nine months ended September 30, 2015, there have been no modifications to our critical accounting policies as defined on Form 10-K for the year ended December 31, 2014.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial statements.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by our quarterly report, management performed, with the participation of our Principal Executive Officer and Principal Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management including our Principal Executive Officer and our Principal Financial Officer, to allow timely decisions regarding required disclosures.

Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II -OTHER INFORMATION

ITEM 1 .

LEGAL PROCEEDINGS

From time to time, we are involved in lawsuits, claims, investigations and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.

ITEM 1A.

RISK FACTORS

There is no change to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 6.

EXHIBITS

31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)

31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)

32.1	Statement of Principal Executive Officer Pursuant to Section 1350 of Title 18 of the United States Code

32.2	Statement of Principal Financial Officer Pursuant to Section 1350 of Title 18 of the United States Code

4.18	Amendment to Warrant Agreement (46)

4.19	Amendment and Restated Amendment to Warrant Agreement (47)

10.46	Letter of Intent, dated June 13, 2015 (48)

10.47	Form of Securities Purchase Agreement (49)

10.48	Form of Note (49)

10.49	Form of Warrant (49)

10.50	Form of Amendment to Securities Purchase Agreement (50)

10.51	Form of Securities Purchase Agreement (51)

10.52	Form of Note (51)

10.53	Form of Warrant (51)

10.54	Form of Registration Rights Agreement (51)

(46)	Incorporated by reference from our Current Report on Form 8-K, filed on May 14, 2015

(47)	Incorporated by reference from our Current Report on Form 8-K, dated June 17, 2015

(48)	Incorporated by reference from our Current Report on Form 8-K, dated June 18, 2015

(49)	Incorporated by reference from our Current Report on Form 8-K, dated August 7, 2015

(50)	Incorporated by reference from our Current Report on Form 8-K, dated August 11, 2015

(51)	Incorporation by reference from our Current Report on Form 8-K, dated November 4, 2015

The following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2015, formatted in eXtensible Business Reporting Language: (i) the Condensed Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows and (v) the Notes to Condensed Financial Statements, as follows:

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema

101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase

101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Extension Presentation Linkbase

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AXION POWER INTERNATIONAL, INC.

/s/ Donald Farley
Donald Farley,
Principal Executive Officer and Director
Dated: November 16, 2015

/s/ Danielle Baker
Danielle Baker, Principal Financial Officer and Principal Accounting Officer
Dated: November 16, 2015

Attached files

Stock widget

Investing forum

Axion Power International, Inc. Reports